Oil rises following US sanctions on Iran

Oil prices rose on Tuesday after US sanctions on Iranian goods went into effect, intensifying concerns that sanctions on Iranian oil, expected in November, could cause supply shortages.

Renewed US sanctions against OPEC member Iran officially went into effect at 0001 EDT. (1400 AEST) The sanctions did not include Iran's oil exports. The country exported almost 3 million barrels per day (bpd) of crude in July.

US sanctions on Iran's energy sector are set to be re-imposed after a 180-day "wind-down period" ending on Nov. 4.

"It certainly is a reminder to everyone that the US is serious about sanctions, and it's doubtful they will grant waivers," said John Kilduff, partner at Again Capital Management in New York.

Brent futures rose 90 cents, or 1.2 per cent, to settle at $US74.65 a barrel, after hitting a session high of $US74.90.

US West Texas Intermediate (WTI) crude futures settled 16 cents, or 0.2 per cent, higher at $US69.17 a barrel, down from an earlier high of $US69.83.

Along with geopolitical tensions that could impact Iran's crude output, traders are also keeping a close eye on US inventories, which are expected to fall 3.3 million barrels in the week ended August 3, according to analysts polled on Tuesday.

Crude futures briefly rose in post settlement trade, with WTI at $US69.07 a barrel, on data from the American Petroleum Institute that showed US crude inventories fell 6 million barrels last week.

Oil prices rose earlier in the trading session after the US sanctions on Iran went into effect, but gains were limited as market participants lacked clear signs on just how much the proposed oil sanctions would affect Iranian crude output, Kilduff said.

WTI faced further resistance, he said, amid a reported uptick in US imports of Saudi oil.

US President Donald Trump tweeted that the sanctions were "the most biting sanctions ever imposed".

"Anyone doing business with Iran will NOT be doing business with the United States," he added.

Many European countries, China and India, oppose the sanctions, but the US government said it wants as many countries as possible to stop buying Iranian oil.

Iraqi Prime Minister Haider al-Abadi said his country opposes sanctions on Iran, but will abide by them to protect its own interests.

"The market continues to price in geopolitical risk from the reimposition of sanctions by the US on Iran," said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut. "The reports that Saudi Arabia's production actually dropped in July continue to provide support for the market."

Saudi Arabia's crude production dropped about 200,000 bpd last month, two sources at the Organisation of the Petroleum Exporting Countries said on Friday, despite a pledge by the Saudis and top producer Russia to raise output from July, with Saudi Arabia promising a "measurable" supply boost.

Meanwhile, US crude production, which has climbed dramatically fueled largely by increased output from shale formations, may now rise more slowly as prices drop, according to the US Energy Information Administration's monthly report.

Output was expected to rise 1.31 million bpd to 10.68 million bpd in 2018, lower than last month's forecast of growth of 1.44 million bpd to 10.79 million, the EIA said.

"We continue to expect Brent crude oil spot prices to fall towards $US70 per barrel by the end of 2018, as the market appears to be fairly balanced in the coming months," said Linda Capuano, EIA Administrator.